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4 Agriculture - Products Stocks to Watch in a Promising Industry
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The Zacks Agriculture - Products industry will benefit from the stable demand for food, supported by an increasing population. Rising consumer awareness regarding food ingredients and the preference for healthier options will drive industry expansion. Alternative and innovative agricultural technologies, such as hydroponics and vertical farming, are expected to serve as significant growth drivers due to their inherent advantages.
Companies like Bunge (BG - Free Report) , West Fraser Timber Co. (WFG - Free Report) , GrowGeneration (GRWG - Free Report) and Hydrofarm (HYFM - Free Report) are poised to gain from strong end-market demand and their ongoing strategic growth initiatives aimed at capitalizing on these trends.
Industry Description
The Zacks Agriculture – Products industry comprises companies that are either involved in storing agricultural commodities, distributing ingredients to others or engaged in farming crops, livestock and poultry products. Some are engaged in purchasing, storing, transporting, processing and selling agricultural commodities or products derived from the same. They operate grain elevators, wherein income is generated from commodities bought and sold using these elevators or held as inventory. Some companies provide nutrients, advanced indoor and greenhouse lighting, environmental control systems, and accessories for hydroponic gardening — the method of growing plants using mineral nutrient solutions in a water solvent instead of soil. A few players offer innovative, plant-based health and wellness products. Companies producing lumber also fall under this industry.
Trends Shaping the Future of the Agriculture - Products Industry
Solid Demand to Support Industry: The demand for food is directly influenced by population and demographic changes beside income growth and income distribution. Per the United Nations, the global population will rise to 8.5 billion in 2030 and 9.7 billion in 2050. This would lead to a 50% increase in global food demand. In response to growing consumer demand for healthier food alternatives, several agricultural and food-based companies are investing in innovation, and augmenting their product and market strategies to bring new quality and healthy food ingredients to the market. Ongoing improvements in grain-handling techniques and investment in larger storage spaces will likely support the industry. Plus, stable earnings across all cycles are ensured, considering the industry’s products are always in demand, irrespective of the condition of the economy.
Hydroponics & Cannabis are Key Catalysts: Hydroponics is gaining popularity as it gives growers the ability to regulate and manage nutrient delivery, light, air, water, humidity, pests and temperature in an indoor setting. This method enables faster crop growth, with higher yields than traditional soil-based cultivation. It is being utilized in new and emerging industries, including the cultivation of cannabis and hemp. Vertical farms producing organic fruits and vegetables also utilize hydroponics due to the shortage of farmland and environmental vulnerabilities. Vertical farming is the latest agricultural technology, wherein shelves and artificial lighting systems are used to grow produce, thereby minimizing land and water consumption. Total sales for the hydroponic equipment industry are projected to surpass $16 billion by 2025. Even though the cannabis industry is undergoing a rough patch due to an oversupply, its long-term prospects remain intact. In the United States, several states have legalized cannabis for medical or recreational use, making it the largest market in the world. Spending on legal cannabis is projected to increase at a steady pace each year in North America and reach $57 billion by 2028.
Cost-Saving Actions to Aid Margins: Players in the industry are facing rising labor, packaging and distribution costs, among other expenses. Companies engaged in animal products have been facing increasing production costs for a while due to elevated feed ingredient prices. However, feed prices have eased lately. The industry continues to navigate a tight labor market with a spike in wages and higher distribution costs. Recently, the companies have been reporting improvements in the supply-chain issues that have been plaguing them so far. They have been making efforts to bolster their financial conditions, conserve cash and improve profitability by implementing pricing and cost-reduction actions, which are likely to help sustain margins in the future.
Zacks Industry Rank Indicates Bright Prospects
The Zacks Agriculture - Products industry is part of the broader Zacks Basic Materials sector. The industry currently carries a Zacks Industry Rank #105, which places it in the top 42% of the 251 Zacks industries.
The group’s Zacks Industry Rank, basically the average of the Zacks Rank of all the member stocks, indicates bright prospects in the near term. Our research shows that the top 50% of the Zacks-ranked industries outperforms the bottom 50% by a factor of more than 2 to 1.
Before we present a few stocks worth considering for your portfolio, let us look at the industry’s recent stock market performance and valuation.
Industry Versus Broader Market
The Zacks Agriculture – Products industry has outperformed its sector but lagged the Zacks S&P 500 composite over the past 12 months. Stocks in this industry have moved up 6% in the past 12 months compared with the S&P 500’s growth of 19.3%. The Basic Materials sector has declined 4.3% in the same timeframe.
One-Year Price Performance
Industry's Current Valuation
On the basis of the trailing 12-month EV/EBITDA ratio, a commonly used multiple for valuing Agriculture - Products stocks, we see that the industry is currently trading at 4.97X compared with the S&P 500’s 19.48X. The Basic Materials sector’s trailing 12-month EV/EBITDA is 11.60X. This is shown in the charts below.
Enterprise Value/EBITDA (EV/EBITDA) Ratio (TTM)
Enterprise Value/EBITDA (EV/EBITDA) Ratio (TTM)
Over the last five years, the industry traded as high as 9.52X and as low as 3.10X, with the median being 4.87X.
4 Agriculture - Products Stocks to Keep an Eye on
Bunge: The company recently signed a deal to sell its 50% share in BP Bunge Bioenergia. As a result of this deal, it will no longer have any interest in its bioenergy and sugarcane ethanol businesses in Brazil. This move is expected to help BG focus on its core businesses and strengthen its balance sheet. The company is progressing on its integration process with Vinterra, which was announced in 2023. This merger will create an innovative global agribusiness company with an enhanced global network, and grain and softseed handling capacity. With a diversified mix across geographies, seasonal cycles and crops, the company will be better positioned to manage risk and increase resiliency. Its efforts to boost its footprint, build relationships with farmers and end consumers, and strengthen its digital capabilities will boost growth. BG shares have gained 4.5% in the past year.
Bunge is an integrated global agribusiness and food company covering the farm-to-consumer food chain. The Zacks Consensus Estimate for this St. Louis, MO-based player’s ongoing-year earnings has moved up 1% to $9.12 in the past 30 days. It has a trailing four-quarter earnings surprise of 30.1%, on average. BG currently carries a Zacks Rank #3 (Hold).
West Fraser: The company recently reported solid second-quarter 2024 results, with revenues rising 6% to $1.705 billion and earnings per share surging 186% to $1.20. The company has been witnessing solid demand for Oriented Strand Board, plywood and other engineered products in North America, driven by the home construction markets. WFG also announced a 7% increase in quarterly dividend to 32 cents per share. The company’s strategy of optimizing its portfolio through divestitures and mill curtailments is expected to contribute to earnings. West Fraser, meanwhile, is making significant capital investments to modernize its mills. Ongoing efforts to improve efficiency and lower costs will aid margins. With strong financial flexibility and a favorable cost position, West Fraser is well-positioned to maintain a competitive edge. The company’s shares have gained 2.8% in the past year.
The Zacks Consensus Estimate for this Vancouver, Canada-based company’s earnings for 2024 suggests year-over-year growth of 187%. West Fraser has a trailing four-quarter earnings surprise of 228%, on average. This diversified wood product company currently carries a Zacks Rank #3.
Price: WFG
GrowGeneration: The company expects to report a sequential increase of 10.6% in revenues in its second-quarter 2024 results. It has been seeing revenue growth, driven by commercial customers. GRWG has recently announced a comprehensive restructuring plan for long-term profitability, and advancing growth initiatives focused on key areas such as proprietary brands, B2B and e-commerce. The plan also includes improvements in inventory management, sales and marketing activities, and other aspects of operations. The plan is expected to boost GRWG’s margins and lead to $12 million in cost savings over the next 12 months. The company’s acquisition strategy focused on acquiring well-established, profitable hydroponic garden centers and proprietary brands, and private-label brands also bodes well.
Greenwood Village, CO-based GrowGeneration owns and operates retail hydroponic and organic gardening stores in the United States. The Zacks Consensus Estimate for the company’s fiscal 2024 bottom line is pegged at a loss of 35 cents per share, suggesting a narrower loss from the 50 cents incurred in fiscal 2023. Earnings estimates have been unchanged over the past 30 days. GRWG currently carries a Zacks Rank #3.
Price: GRWG
Hydrofarm: The company is focused on streamlining operations, reducing costs and improving efficiencies. Aided by these efforts, HYFM has delivered gross margin expansion for five consecutive quarters. Major initiatives include narrowing the product and brand portfolio, relocating and consolidating certain manufacturing and distribution centers, and sale of assets related to the production of certain durable equipment products. Hydrofarm will also sell its proprietary branded IGE products, and as a result of the transaction, it expects improved profitability on future IGE-branded product sales due to an anticipated decrease in fixed costs. The company has also been expanding its reach to serve non-cannabis controlled-environment applications, including food, floral, and lawn and garden.
Shoemakersville, PA-based Hydrofarm engages in the manufacturing and distribution of controlled-environment agriculture equipment and supplies in the United States and Canada. The Zacks Consensus Estimate for HYFM’s fiscal 2024 bottom line is pegged at a loss of 94 cents, indicating a narrower loss from the $1.07 reported in fiscal 2023. The consensus estimate has been unchanged over the past 30 days. HYFM currently carries a Zacks Rank #3.
Price: HYFM
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4 Agriculture - Products Stocks to Watch in a Promising Industry
The Zacks Agriculture - Products industry will benefit from the stable demand for food, supported by an increasing population. Rising consumer awareness regarding food ingredients and the preference for healthier options will drive industry expansion. Alternative and innovative agricultural technologies, such as hydroponics and vertical farming, are expected to serve as significant growth drivers due to their inherent advantages.
Companies like Bunge (BG - Free Report) , West Fraser Timber Co. (WFG - Free Report) , GrowGeneration (GRWG - Free Report) and Hydrofarm (HYFM - Free Report) are poised to gain from strong end-market demand and their ongoing strategic growth initiatives aimed at capitalizing on these trends.
Industry Description
The Zacks Agriculture – Products industry comprises companies that are either involved in storing agricultural commodities, distributing ingredients to others or engaged in farming crops, livestock and poultry products. Some are engaged in purchasing, storing, transporting, processing and selling agricultural commodities or products derived from the same. They operate grain elevators, wherein income is generated from commodities bought and sold using these elevators or held as inventory. Some companies provide nutrients, advanced indoor and greenhouse lighting, environmental control systems, and accessories for hydroponic gardening — the method of growing plants using mineral nutrient solutions in a water solvent instead of soil. A few players offer innovative, plant-based health and wellness products. Companies producing lumber also fall under this industry.
Trends Shaping the Future of the Agriculture - Products Industry
Solid Demand to Support Industry: The demand for food is directly influenced by population and demographic changes beside income growth and income distribution. Per the United Nations, the global population will rise to 8.5 billion in 2030 and 9.7 billion in 2050. This would lead to a 50% increase in global food demand. In response to growing consumer demand for healthier food alternatives, several agricultural and food-based companies are investing in innovation, and augmenting their product and market strategies to bring new quality and healthy food ingredients to the market. Ongoing improvements in grain-handling techniques and investment in larger storage spaces will likely support the industry. Plus, stable earnings across all cycles are ensured, considering the industry’s products are always in demand, irrespective of the condition of the economy.
Hydroponics & Cannabis are Key Catalysts: Hydroponics is gaining popularity as it gives growers the ability to regulate and manage nutrient delivery, light, air, water, humidity, pests and temperature in an indoor setting. This method enables faster crop growth, with higher yields than traditional soil-based cultivation. It is being utilized in new and emerging industries, including the cultivation of cannabis and hemp. Vertical farms producing organic fruits and vegetables also utilize hydroponics due to the shortage of farmland and environmental vulnerabilities. Vertical farming is the latest agricultural technology, wherein shelves and artificial lighting systems are used to grow produce, thereby minimizing land and water consumption. Total sales for the hydroponic equipment industry are projected to surpass $16 billion by 2025. Even though the cannabis industry is undergoing a rough patch due to an oversupply, its long-term prospects remain intact. In the United States, several states have legalized cannabis for medical or recreational use, making it the largest market in the world. Spending on legal cannabis is projected to increase at a steady pace each year in North America and reach $57 billion by 2028.
Cost-Saving Actions to Aid Margins: Players in the industry are facing rising labor, packaging and distribution costs, among other expenses. Companies engaged in animal products have been facing increasing production costs for a while due to elevated feed ingredient prices. However, feed prices have eased lately. The industry continues to navigate a tight labor market with a spike in wages and higher distribution costs. Recently, the companies have been reporting improvements in the supply-chain issues that have been plaguing them so far. They have been making efforts to bolster their financial conditions, conserve cash and improve profitability by implementing pricing and cost-reduction actions, which are likely to help sustain margins in the future.
Zacks Industry Rank Indicates Bright Prospects
The Zacks Agriculture - Products industry is part of the broader Zacks Basic Materials sector. The industry currently carries a Zacks Industry Rank #105, which places it in the top 42% of the 251 Zacks industries.
The group’s Zacks Industry Rank, basically the average of the Zacks Rank of all the member stocks, indicates bright prospects in the near term. Our research shows that the top 50% of the Zacks-ranked industries outperforms the bottom 50% by a factor of more than 2 to 1.
Before we present a few stocks worth considering for your portfolio, let us look at the industry’s recent stock market performance and valuation.
Industry Versus Broader Market
The Zacks Agriculture – Products industry has outperformed its sector but lagged the Zacks S&P 500 composite over the past 12 months. Stocks in this industry have moved up 6% in the past 12 months compared with the S&P 500’s growth of 19.3%. The Basic Materials sector has declined 4.3% in the same timeframe.
One-Year Price Performance
Industry's Current Valuation
On the basis of the trailing 12-month EV/EBITDA ratio, a commonly used multiple for valuing Agriculture - Products stocks, we see that the industry is currently trading at 4.97X compared with the S&P 500’s 19.48X. The Basic Materials sector’s trailing 12-month EV/EBITDA is 11.60X. This is shown in the charts below.
Enterprise Value/EBITDA (EV/EBITDA) Ratio (TTM)
Enterprise Value/EBITDA (EV/EBITDA) Ratio (TTM)
Over the last five years, the industry traded as high as 9.52X and as low as 3.10X, with the median being 4.87X.
4 Agriculture - Products Stocks to Keep an Eye on
Bunge: The company recently signed a deal to sell its 50% share in BP Bunge Bioenergia. As a result of this deal, it will no longer have any interest in its bioenergy and sugarcane ethanol businesses in Brazil. This move is expected to help BG focus on its core businesses and strengthen its balance sheet. The company is progressing on its integration process with Vinterra, which was announced in 2023. This merger will create an innovative global agribusiness company with an enhanced global network, and grain and softseed handling capacity. With a diversified mix across geographies, seasonal cycles and crops, the company will be better positioned to manage risk and increase resiliency. Its efforts to boost its footprint, build relationships with farmers and end consumers, and strengthen its digital capabilities will boost growth. BG shares have gained 4.5% in the past year.
Bunge is an integrated global agribusiness and food company covering the farm-to-consumer food chain. The Zacks Consensus Estimate for this St. Louis, MO-based player’s ongoing-year earnings has moved up 1% to $9.12 in the past 30 days. It has a trailing four-quarter earnings surprise of 30.1%, on average. BG currently carries a Zacks Rank #3 (Hold).
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Price: BG
West Fraser: The company recently reported solid second-quarter 2024 results, with revenues rising 6% to $1.705 billion and earnings per share surging 186% to $1.20. The company has been witnessing solid demand for Oriented Strand Board, plywood and other engineered products in North America, driven by the home construction markets. WFG also announced a 7% increase in quarterly dividend to 32 cents per share. The company’s strategy of optimizing its portfolio through divestitures and mill curtailments is expected to contribute to earnings. West Fraser, meanwhile, is making significant capital investments to modernize its mills. Ongoing efforts to improve efficiency and lower costs will aid margins. With strong financial flexibility and a favorable cost position, West Fraser is well-positioned to maintain a competitive edge. The company’s shares have gained 2.8% in the past year.
The Zacks Consensus Estimate for this Vancouver, Canada-based company’s earnings for 2024 suggests year-over-year growth of 187%. West Fraser has a trailing four-quarter earnings surprise of 228%, on average. This diversified wood product company currently carries a Zacks Rank #3.
Price: WFG
GrowGeneration: The company expects to report a sequential increase of 10.6% in revenues in its second-quarter 2024 results. It has been seeing revenue growth, driven by commercial customers. GRWG has recently announced a comprehensive restructuring plan for long-term profitability, and advancing growth initiatives focused on key areas such as proprietary brands, B2B and e-commerce. The plan also includes improvements in inventory management, sales and marketing activities, and other aspects of operations. The plan is expected to boost GRWG’s margins and lead to $12 million in cost savings over the next 12 months. The company’s acquisition strategy focused on acquiring well-established, profitable hydroponic garden centers and proprietary brands, and private-label brands also bodes well.
Greenwood Village, CO-based GrowGeneration owns and operates retail hydroponic and organic gardening stores in the United States. The Zacks Consensus Estimate for the company’s fiscal 2024 bottom line is pegged at a loss of 35 cents per share, suggesting a narrower loss from the 50 cents incurred in fiscal 2023. Earnings estimates have been unchanged over the past 30 days. GRWG currently carries a Zacks Rank #3.
Price: GRWG
Hydrofarm: The company is focused on streamlining operations, reducing costs and improving efficiencies. Aided by these efforts, HYFM has delivered gross margin expansion for five consecutive quarters. Major initiatives include narrowing the product and brand portfolio, relocating and consolidating certain manufacturing and distribution centers, and sale of assets related to the production of certain durable equipment products. Hydrofarm will also sell its proprietary branded IGE products, and as a result of the transaction, it expects improved profitability on future IGE-branded product sales due to an anticipated decrease in fixed costs. The company has also been expanding its reach to serve non-cannabis controlled-environment applications, including food, floral, and lawn and garden.
Shoemakersville, PA-based Hydrofarm engages in the manufacturing and distribution of controlled-environment agriculture equipment and supplies in the United States and Canada. The Zacks Consensus Estimate for HYFM’s fiscal 2024 bottom line is pegged at a loss of 94 cents, indicating a narrower loss from the $1.07 reported in fiscal 2023. The consensus estimate has been unchanged over the past 30 days. HYFM currently carries a Zacks Rank #3.
Price: HYFM